24 Jan Breaking Down a Successful Sale of a $13M MSP
Listen was we talk about the successful sale of our $13M MSP client.
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Mike Harvath 00:05
Hello and welcome to this week’s Shoot the Moon podcast broadcasting live and direct from Revenue Rocket world Headquarters in Bloomington, Minnesota. As you know, Revenue Rocket is the world’s premier growth strategy and merger and acquisition advisor for tech enabled services companies. And I’m happy to be here with my partners, Matt Lockhart and Ryan Barnett, and talking about the deal we did recently. Welcome guys.
Matt Lockhart 00:33
Hey, Mike, Hey, Ryan, good to be with you. Isn’t this probably the best topic that we could have? Right is celebrating the success of one of our clients and, and a really valued partner that they were able to come together with. So pretty cool stuff.
Ryan Barnett 00:50
Totally agree. So when we look at deals revenue rocket, we don’t believe any deal will get done and less, really three huge criteria are met. And that is it has to be a strategic combination. That makes sense, there has to be a cultural fit. And there has to be a financial fit, assuming that their strategic and cultural fits as well. So if those three all come together, ideal can get done. And there’s a ton of work in the background that goes into a deal from the date of the first meeting all the way to the to the data that close, that involves a lot of preparation and a lot of work. But if done, right, it can be something just really beneficial to everyone. And this is a case, which we saw deal from the start to the finish. And it was exciting, exciting throughout. So Matt, why don’t you can you just shape up? Who this is what it’s about and in our the role that we played?
Matt Lockhart 01:47
Yeah, so Well, let’s talk about our client CMIT of Rhode Island htw is their corporate name, just a great client. And real quickly, they are a strategic managed services provider. And when I say strategic managed services provider, it’s because they created just a real strength in serving the hotel hospitality industry. Right. So, you know, if you’re, if you’re a common listener of the podcast, we advocate for creating differentiation through verticalization. And this is something that this firm did and and they’re a powerhouse in that industry. And they also were part of this CMIT franchise network of very strong firm private equity firm in the middle market space H k w saw the vision to buy both the franchisor which is CMIT, the CMIT overall network, as well as the very largest franchisee who happened to be our client ht w and and combine those to create what is this nationwide network as well as this growing nationwide franchisee capability franchisee store through HT. W. And it I think it really, to your point, Ryan, check that strategic box, like tenfold. Right. And so, you know, it’s just a wonderful opportunity for all parties involved because of the strategic nature. But, you know, you got to check those other two boxes, which is the cultural aspect and the financial aspect and, and we were able to do that as well. So that was sort of the general nature I you know, we don’t need to go through the the overall the sort of flow. But I think that by giving our client the opportunity to see a few different things, a few different potential deals, it really furthered his understanding of the strategic nature of this particular opportunity. And and I think that that was great, and being able to come together on not just the the value of getting this deal done, but the longer term strategic opportunity for our customer. And for all the parties is really kind of what came to fruition.
Ryan Barnett 04:42
It’s a great intro there. They were a great client for revenue rocket. And I would say that the way that the business was put together was was really well done. And I would say that there’s something that they did in throughout this process. that every selling firm should do. And that is they, they crushed every quarter throughout the whole process. Like, how important is that to focus on the business and run the business, like it’s not for sale?
Mike Harvath 05:17
Wow, it is paramount, you know, if you’re a regular listener to this podcast, you’ll know that we often say, you should run your business as if it’s not for sale. And the best thing you can do is to continue to have sort of a up into the right growth trajectory for both revenue and profit throughout the process. It’s very easy to get distracted by, you know, everything that’s required to kind of go through m&a effort. And be thinking about, you know, your future and kind of getting caught up with that a little bit. You know, we see sometimes sellers get a little bit wrapped around the axle about thinking about what’s next and spending a little bit too much time on that. When they as much as we said, that’s important to have some direction on what that’s going to be, it’s probably more important that you during a time, when you’re in the process of selling your business a you continue to perform really well, it provides comfort that the buyer is buying a growing and robust asset, it makes the negotiations much easier. As it relates to you know, everything that needs to get negotiated in an m&a deal, we often say you got to negotiate about 150 things once you get past the LOI. So really important that if the business is growing well and very profitable, that those negotiations go so much more smoothly. And in this case, you know, ECW, did a phenomenal job of continuing to grow their business, keep their eye on the business, manage it in a meaningful way. And that, you know, in many ways made for a very successful outcome.
Ryan Barnett 07:03
Absolutely, and that was something I believe that was modeled throughout, if you looked through the start put the process through the end, the ability to meet the numbers to structure the deal in a way that rewarded growth was important in the in the deal making as well as they execution, the throughout. When you look at this deal financially in the in the company itself, Matt, I think it might be best to answer this, where did the role of the advisor and advisors really come in, in shaping up? What a suitor is going to look for, perhaps on all from the marketing materials through the due diligence support?
Matt Lockhart 07:49
Yeah, I think, obviously, we have the trust of our client to do right by him. And I just want to go back real quick. One of the other factors that that really enabled him to continue to crush it was our clients team, the founders team, having that team in place to continue to operate the business while he was able to engage in in the sale process was was absolutely key. That being said, he still had to keep his eye on the ball. And that’s where, you know, having a great deal of trust in us as his advisor, I think really played a role in it, you know, we were able to spend considerable time with our client and understanding the nuances of his business and being educated by him. So that we were able to really convey to the buyer, the true nature of how this operation was run, what the upside opportunity was within his market, and the capabilities that he had to go to market, the strength of his his financials not just in in the process itself, but also historically, and then be able to sort of deliver upon that message through all of the information that was surfaced. And it was, I mean, I’ll tell you, it was a bit of an arduous due diligence process. That happens very quickly. We’re busy in that in the fourth quarter of last year. And so I think that it’s it’s, you know, because of the trust that we were able to build with him, and really digging in and understanding not just the top level of his business, but some of the nuances of his business was I think, really did sort of facilitate getting to the right structure, you know, and the right deal and quite honestly, I think finding, as Mike would say, the ultimate value is it comes together through the buyer and the seller and and is highly based upon the strategic value that is present and let’s just say that I think that occurred here in this opportunity.
Ryan Barnett 10:07
I would say another thing to consider here is the expediency that the seller was able to come up and answer questions I had. And to frame it up the buyer, I would say, at a virtual army of consultants working through due diligence, and really an impressive way that other buyers could model processes around by looking at, at HR looking at legal looking at agreements in a in an expedient way. I would say one thing that our our client did very well was being really responsive, and being able to look at documents and document requests and answer those quickly. But also working with with us as a as their advisor to make sure that the documents that they are providing, are putting the company in the best light and and telling the story how it should be in and should be interpreted. So a lot of like the expediency in the help from the seller can really make that process go just a bit faster.
Matt Lockhart 11:13
I think that’s a great point, Ryan, I also think that the flexibility that was shown by both parties throughout the process, especially given the amount of people that were involved, I think was, was absolutely key and, and that flexibility demonstrates a will a will to get her done. And I think the other point is, as you were talking that I I think that everybody did a really good job with is staying positive. Right, the due diligence process can be somewhat arduous, and there are, you know, negotiating points. And there, you know, a little bit of that. And, you know, we see our role is to get that done for our clients, while at the same time keeping everybody positive, and keeping their eye on the prize as to as to why this is a great opportunity. And I think that that link that happened and I know we’ve talked in follow up and and everybody’s pretty fired up for what’s coming in 2023 and beyond because of this acquisition.
Ryan Barnett 12:23
Were there any moments or hiccups in a deal that you could perhaps tell other sellers to watch out for? And we don’t have to get into super specifics here. But even themes around anything that can derail conversations or derail things?
Matt Lockhart 12:43
You know, not major ones, I do think that in this opportunity, and I think it transcends to really all opportunities. Orion is is understanding and coming together at an appropriate level and appropriate depth on the forward strategic view. And and this was, in particular, important because our client, he sold him, right, he’s he’s he’s continuing forward as a partner, and an important player for this new combined entity. And because of that, making sure that they came together on on this is the strategy at least, again, these are the strategic elements that are going to create opportunity moving forward, you know, sure, there’s always terms and there’s always right, there’s always those things that can create a little bit of a hiccup and a little bit of consternation, but again, keeping the eye on the prize. And if there were, you know, I have some points where it’s like, Well, did we hear the same thing? Are we talking the same language and so on and so forth. And, and so giving enough time to make sure that those things are coming together is is one of those areas that that really does facilitate get on getting past other kind of smaller hiccups in in the deal?
Ryan Barnett 14:19
That’s a great point. I would say one other thing that I at least I observed was the owner was a very authentic from the day one tell the tale through the clothes. And that really was something that that was bright throughout the whole process as that being consistent in in what he believed in what he did. And the team kind of working all together through the right thing was a real real bright spot as well. Mike, what are the things that you see in this deal that you think our listeners can learn from?
Mike Harvath 14:56
Well, you know, I think some of its already been discussed. But I think our client was very much steady hand on the tiller. You know, he took our advice, which I think is important, I think it’s easy to want to sort of grab the wheel, if you will, if you’re a seller, especially when the negotiation can get heated, it can get challenging. And, you know, I think he was a very level headed, great executive that use his resources and the tools and the toolbox very well. And one of those was, you know, our team’s ability to move this deal forward, and negotiate it in a meaningful way. And I think when you when you hire a firm or an advisor, it’s important to take their advice, that’s why you’re hiring them. Right. Certainly, we’re not perfect. And our advice, there may not sound like it fits for you. But it is based on lots of years of experience, and seeing kind of what works and what doesn’t, and other deals. And I think it’s pursuant to, you know, finding the best outcome to leverage the most experienced folks in the room to help you get to the end goal. And, you know, we, you know, our client, in this case, did a did that expertly. I’d like to think that we, you know, perform pretty well for him because of that.
Ryan Barnett 16:32
I agree. Overall, the other thing to mention the category and space in which a company is in congruently help. There was a tremendous amount of interest throughout throughout this process. And there were many buyers that were interested in, and ultimately the right buyers came through, and it was a really great fit for everyone being in a space and doing what you do well, and being in that managed services space, have a high level of recurring revenue, have a really defined target market that you can be passionate and speak about. And, and if you if the buyer has that similar search or market or they have an adjacency strategy to get in that market can be very powerful for for sellers. I think all those were exemplary for our client here. Matt, I’ll push it over to you for for any kind of closing thoughts and anything else our audience should know.
Matt Lockhart 17:36
Yeah, I think we’ve covered it pretty well, Ryan, I mean, I guess the best way to sum it up is a great client, really impressive buyer. Great opportunity. They’re gonna go kill it. And, uh, you know, we’re just happy that we’re able to play, play a part in it. And so that’s it. I mean, let’s, let’s go do some more. Right, super fun. Mike, how do we close it out?
Mike Harvath 18:04
There you go Matt, appreciate the tee up. I think I have to tip my hat to all the advisors and the individuals involved in this particular transaction. And certainly there was many of them. And they all were consummate professionals in helping us get done on effective way. So thank you across the board, but that will tie a ribbon on it for this week’s Shoot the Moon podcast. We encourage you to tune in next week, explore and unpack various topics about m&a in the tech enabled services, space and the middle market as well as growth strategies that will help you grow organically and continue to take advantage of the great opportunity we all have and 2023 for you tune in next week. Make it a great week. Thank you